Reverse Mortgages FOR DUMmIES ‰ by Sarah Glendon Lyons and John E.Lucas 01_584464 ffirs.qxd 5/24/05 10:47 PM Page i Reverse Mortgages For Dummies ® Published by Wiley Publishing, Inc. 111 River St. Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2005 by Wiley Publishing, Inc., Indianapolis, Indiana Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permit- ted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written per- mission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600. 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Library of Congress Control Number: 2005923784 ISBN-13: 978-07645-8446-6 ISBN-10: 0-7645-8446-4 Manufactured in the United States of America 10 9 8 7 6 5 4 3 2 1 1O/RT/QW/QV/IN 01_584464 ffirs.qxd 5/24/05 10:47 PM Page ii About the Author Sarah Glendon Lyons is a San Diego-based writer with a diverse portfolio of housing-industry experience. She holds a B.A. in English Language and Literature from the University of Arizona, and studied at Australia’s University of Wollongong before joining Hanley Wood LLC, publishers of over 75 consumer home magazines. As an editor for Pfingsten Publishing’s Mortgage Originator magazine, she has written hundreds of articles for mortgage professionals. Although she has developed a wide scope of lending insight, her particular expertise is in the reverse mortgage field. Sarah has been inter- viewed on the topic of reverse mortgages by leading mortgage executives and sales trainers, and offers reverse mortgage informa- tion to originators and consumers around the country. Her perspec- tive as an unbiased researcher and consultant allows her to provide readers with both the benefits and challenges of reverse mortgages. John E. Lucas has been in the mortgage banking industry for over 39 years, actively originating mortgage loans in the Van Nuys, Ca. area. When the Department of Housing and Urban Development (HUD) introduced the HECM reverse mortgage in 1989, he worked with one of the companies HUD chose to participate in the test pro- gram. His involvement in this process led him to concentrate his career on reverse mortgages, rather than the typical “forward” mortgage. John has lectured on the subject of reverse mortgages to a wide variety of organizations and groups such as senior centers, realtors, CPAs, financial planners, elder law attorneys, service clubs and university groups, and is a member of the National Reverse Mortgage Lenders Association. John will tell anyone he comes in contact with about reverse mort- gages, and admits he has a “passion” for the program. He feels strongly about expanding the public’s awareness of reverse mort- gages, because he has seen how a reverse mortgage can change a senior’s quality of life. As a senior himself, he understands the needs of seniors and is committed to continue originating reverse mortgages for the foreseeable future. 01_584464 ffirs.qxd 5/24/05 10:47 PM Page iii Dedication We would like to dedicate this book to all those who have taken an active role in their future finances, whether through a reverse mortgage or by other means. To all those baby boomers who are planning early, to all those adult children who have set aside the time to help their parents with this essential decision, and of course, to all of our senior readers who chose to be in control of their own financial destiny. We wish you the best of luck! Author’s Acknowledgments We would like to thank everyone who made this book possible, all those who supported our efforts, and our friends and family who sat patiently by as we toiled away through weekends and holidays. Thank you to our acquisitions editor Mikal Belicove for your per- sonal, kind attention to this project. Thank you Jennifer Connolly for all of your hard work editing this manuscript and for being such a great source of ideas. Thank you Peter Bell for acting as Technical Editor and offering your and the National Reverse Mortgage Lenders Association’s support. Thank you Carole Sparrow, reverse mort- gage counselor, and Mary Beth Johnson, appraiser, for your time and efforts providing information and proofing the chapters you inspired. Sarah Glendon Lyons: I would especially like to thank Pfingsten Publishing and Mortgage Originator magazine for the constant encouragement and interest in this project. Thank you David Branfman for your legal council and generosity. John Obradovich, thank you for recommending me as the reverse mortgage expert. Thank you to my co-author, John Lucas, for your dedication and commitment to this book. I’m particularly grateful to my parents, family, and friends who consistently asked about “the book” and learned more than they ever wanted to know about reverse mort- gages, all with a smile. To Adam, thank you for waiting patiently while I worked, and always offering to read over these pages. To everyone who helped make this book a possibility, my sincere thanks. John E. Lucas: I want to thank Sarah Lyons for the opportunity to participate in the writing of this book. I believe the reverse mort- gage is a very important program that helps alleviate difficult finan- cial problems for seniors. In most cases, the reverse mortgage will change the quality of a senior’s life, sometimes rather dramatically. Working with seniors and helping them to obtain reverse mortgages has been the most satisfying portion of my professional career. Playing a role in the writing of this book has been a privilege. 01_584464 ffirs.qxd 5/24/05 10:47 PM Page v Publisher’s Acknowledgments We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/. Some of the people who helped bring this book to market include the following: Acquisitions, Editorial, and Media Development Project Editor: Jennifer Connolly Acquisitions Editor: Mikal Belicove Copy Editor: Jennifer Connolly Technical Editor: Peter Bell Editorial Manager: Michelle Hacker Editorial Supervisor: Carmen Krikorian Editorial Assistants: Hanna Scott, Melissa Bennett Cartoons: Rich Tennant ( www.the5thwave.com) Composition Services Project Coordinator: Adrienne Martinez Layout and Graphics: Carl Byers, Andrea Dahl Proofreaders: David Faust, Joe Niesen, Carl William Pierce, TECHBOOKS Production Services Indexer: TECHBOOKS Productions Services Publishing and Editorial for Consumer Dummies Diane Graves Steele, Vice President and Publisher, Consumer Dummies Joyce Pepple, Acquisitions Director, Consumer Dummies Kristin A. Cocks, Product Development Director, Consumer Dummies Michael Spring, Vice President and Publisher, Travel Kelly Regan, Editorial Director, Travel Publishing for Technology Dummies Andy Cummings, Vice President and Publisher, Dummies Technology/General User Composition Services Gerry Fahey, Vice President of Production Services Debbie Stailey, Director of Composition Services 01_584464 ffirs.qxd 5/24/05 10:48 PM Page vi Contents at a Glance Introduction 1 Part 1: Understanding the Basics of a Reverse Mortgage 7 Chapter 1: Figuring Out the Reverse Mortgage Basics 9 Chapter 2: Deciding Whether a Reverse Mortgage Is Right for You 25 Chapter 3: Having the Right Stuff: Borrower Qualifications 39 Chapter 4: Repaying Your Loan 51 Part II: Going Shopping: Product Options 63 Chapter 5: Following the Crowd: The Home Equity Conversion Mortgage 65 Chapter 6: Figuring Out the Fannie Mae Home Keeper Loans 85 Chapter 7: Jumping into Jumbo Cash Accounts 103 Part III: Taking the Plunge 119 Chapter 8: Taking the First Step: Seeing a Counselor 121 Chapter 9: Working on Step Two: Your Originator 137 Chapter 10: Going Forward with Step Three: Getting Appraised 153 Chapter 11: Sealing the Deal with Step Four: Closing 163 Part IV: Giving Advice for Adult Children 177 Chapter 12: Supporting Your Parents 179 Chapter 13: Knowing the Impact of a Reverse Mortgage on Your Inheritance 197 Chapter 14: Getting Durable Power of Attorney 211 Part V: The Part of Tens 227 Chapter 15: Top Ten What Ifs When Considering a Reverse Mortgage 229 Chapter 16: Ten Resources for Securing a Reverse Mortgage 237 Chapter 17: Ten Common Mistakes Borrowers Make 243 Appendix: Glossary 251 Index 257 02_584464 ftoc.qxd 5/24/05 10:48 PM Page vii Table of Contents Introduction 1 About This Book 1 Conventions Used in This Book 2 Foolish Assumptions 2 How This Book Is Organized 3 Part I: Understanding the Basics of a Reverse Mortgage 3 Part II: Going Shopping: Product Options 4 Part III: Taking the Plunge 4 Part IV: Giving Advice for Adult Children 4 Part V: The Part of Tens 5 Icons Used in This Book 5 Where to Go from Here 6 Part I: Understanding the Basics of a Reverse Mortgage 7 Chapter 1: Figuring Out the Reverse Mortgage Basics . . . . . . . . . . . . . . . . . . . . . . . 9 Understanding Reverse Mortgages 9 Checking out how it works 10 Being over the hill pays off 11 Getting rid of common misconceptions 11 Knowing what it isn’t 13 Choosing a Loan Product 14 Home Equity Conversion Mortgage 15 Home Keeper 16 Jumbo Cash Accounts 16 Figuring Out the People in Your Mortgage 17 Counselor 17 Originator 18 Appraiser 19 Getting Paid 21 Figuring out how much you can get 21 Checking out payment options 22 Discovering the effect of the funds on your finances 23 Dealing with inflation and interest rates 24 02_584464 ftoc.qxd 5/24/05 10:48 PM Page ix Chapter 2: Deciding Whether a Reverse Mortgage Is Right for You . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Pinpointing Your Motives 25 Determining what you need 26 Deciphering what you want 30 Keeping Your Options Open 33 Knowing When to Walk Away 36 Knowing when you shouldn’t get a reverse mortgage 36 Knowing if you’re ready 38 Chapter 3: Having the Right Stuff: Borrower Qualifications . . . . . . . . . . . . . . . . . . . . . . . 39 Finding Out If You Qualify 39 Aging gracefully 40 Coupling 41 Retaining Title 42 Paying off your current mortgage 43 Staying put 44 Living Room: Eligible Homes 45 Single-family homes 46 Condos and townhouses 47 Manufactured homes 47 Multi-family homes 48 Second homes 49 Chapter 4: Repaying Your Loan . . . . . . . . . . . . . . . . . . . . 51 Getting the Loan Repaid 51 Figuring out when it’s due and who has to pay it 52 Contacting the lender 53 Settling your tab 54 Understanding the TALC 56 Knowing When to Repay Your Loan 57 Paying as you go 57 Moving out 58 Moving on 59 Part II: Going Shopping: Product Options 63 Chapter 5: Following the Crowd: The Home Equity Conversion Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Getting to Know the HECM 65 Meeting HECM Requirements 66 Checking out lending limits 67 Factoring in your age 68 Reverse Mortgages For Dummies x 02_584464 ftoc.qxd 5/24/05 10:48 PM Page x Taking into account your home’s value 69 Checking out current interest rates 70 Paying Up 73 Investing in Mortgage Insurance Premiums (MIP) 76 Cashing In 77 Receiving monthly payments 78 Banking on a line of credit 80 Choosing a lump sum 81 Going with combinations 82 Chapter: Figuring Out the Fannie Mae Home Keeper Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 Buying a New Home 86 Making a down payment 87 Figuring out what you can afford 88 Meeting the Requirements 89 Qualifying homes 90 Making necessary repairs 90 Reaching Higher Borrowing Limits 91 Adjusting expectations 92 Considering age 93 Factoring in interest rates 94 Evaluating the Costs 96 Getting the Check 98 Simplifying with monthly payments 98 Building a line of credit 99 Combining your options 101 Chapter 7: Jumping into Jumbo Cash Accounts . . . . 103 Figuring Out Jumbo Cash Accounts 103 Meeting Financial Freedom 104 Understanding Cash Accounts 105 Withdrawing your equity 107 Qualifying for a Jumbo Cash Account 109 Loaning in the Lone Star State 109 Checking out eligibility 109 Taking an Interest in London 110 Paying for Splendor 111 Choosing Loan Options 113 Selecting the standard Cash Account 114 Selecting the Zero Point option 115 Checking out the Simply Zero option 116 Comparing options 117 Table of Contents xi 02_584464 ftoc.qxd 5/24/05 10:48 PM Page xi Part III: Taking the Plunge 119 Chapter 8: Taking the First Step: Seeing a Counselor . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 Finding a Counselor 121 Knowing What to Expect 124 Making the appointment 125 Discussing your needs 126 Understanding your options 128 Bringing the Whole Gang 129 Including family and friends 129 Using professionals 130 Knowing What to Look For 130 Exploring Other Options 131 Waiting it out 131 Thinking forward 131 Sharing your home 133 Checking out government loans 134 Chapter 9: Working on Step Two: Your Originator . . . 137 Meeting Your Originator 137 Understanding originating lenders 138 Figuring out servicing lenders 138 Looking for the right stuff 139 Originating the Loan 140 Applying for your loan 141 Getting ready for closing 143 Going Behind the Scenes: Processors and Underwriters 144 Giving processors credit 144 Deciding your future: underwriters 145 Finding an Originator 145 Starting with national associations 146 Asking friends and family 146 Checking with community centers 147 Surfing for originators 148 Paying attention to advertisements 149 Avoiding Predatory Lending 150 Outsmarting a predatory lender 150 Staying protected with RESPA 151 Knowing Your Role 151 Asking questions 151 Following up 152 Getting help 152 Reverse Mortgages For Dummies xii 02_584464 ftoc.qxd 5/24/05 10:48 PM Page xii [...]... Using a “Forward” Originator .249 Appendix: Glossary 251 Index 257 xvi Reverse Mortgages For Dummies Introduction W elcome to Reverse Mortgages For Dummies! You’ve just done yourself a huge favor By picking up this book, you’re that much closer to finding out if a reverse mortgage is right for you and to discovering how to go about securing this rapidly growing loan option for yourself... Pretty soon you should be a calm, cool reverse mortgage guru 6 Reverse Mortgages For Dummies If you see a warning icon, pay close attention! Since reverse mortgages have been around for over 20 years, there have been plenty of trail-blazing borrowers before you You can learn from others’ common mistakes, as well as get a heads up on things that may cause problems for you down the road Are you a savvy... about reverse mortgages Reverse mortgages aren’t for everyone, and this book is in no way an advertisement for the loan We’re not here to sell you on reverse mortgages; in fact, we’ve included an entire chapter on determining whether or not this loan is right for you (see Chapter 2) What we do want to accomplish by writing this book is to open your mind to the idea of reverse mortgages and squelch some... you’re wearing your I heart Reverse Mortgages T-shirt, and you poured yourself a nice hot cup of reverse mortgage coffee Now what? You can open this book to Chapter 1 and settle in for a quiet afternoon of absorbing everything you can about reverse mortgages if that’s your style For those on the go, you can pick up this book for ten minutes a day and flip through looking for topics that interest you... about reverse mortgages lately, as they’re quickly becoming a popular, safe, simple way to supplement seniors’ retirement income In this chapter, you can see the basics of modern reverse mortgages and get a feel for whether these loans are right for you or someone you love By the end of this chapter, you should be able to explain the rudiments of reverse mortgages to anyone like a pro Understanding Reverse. .. expenses, or take a trip to Spain Introduction 3 ߜ We assume you’re no dummy You may not be the expert on reverse mortgages (yet), but you’re a smart, capable person who’s ready to see how you can help yourself live more comfortably in your retirement How This Book Is Organized Reverse Mortgages For Dummies is organized in five parts, all of which are designed to be read in any order You can start at... about reverse mortgages before, and you probably have some reservations about them — it’s okay, it’s good to be skeptical about any financial matter that you’re not entirely comfortable with Don’t worry, you won’t hurt our feelings if you’re reading this with one hesitant eyebrow raised Our job is to put your mind at ease and give you the tools you need to make a fully informed decision about reverse mortgages. .. boost your reverse mortgage confidence quotient Like sidebars, you can save these paragraphs for a rainy day or just skip them altogether Sometimes, we explain a technical fact or define a situation that, quite frankly, isn’t vital to your understanding of the reverse mortgage process, although they may enhance your knowledge of reverse mortgages and its finer points We love the topic of reverse mortgages. .. people have about the loan It’s like you probably said to your kids — we just want what’s best for you If the answer to your financial situation is a reverse mortgage, great! If not, pass this on to a friend or family member who may benefit from a reverse mortgage About This Book We wrote Reverse Mortgages For Dummies to make this loan accessible to all seniors and anyone who may benefit from the loan... Ready? Set? Reverse Mortgage! Part I Understanding the Basics of a Reverse Mortgage Y In this part ou may have misconceptions about reverse mortgages based on what you’ve heard in the past Or, you may be so new to the idea that you don’t have any preconceived notions at all This part clears up the myths and explains the ins and outs of reverse mortgages In Chapter 1 you can find general information . fully informed decision about reverse mortgages. Reverse mortgages aren’t for everyone, and this book is in no way an advertisement for the loan. We’re not here to sell you on reverse mortgages; . Reverse Mortgages FOR DUMmIES ‰ by Sarah Glendon Lyons and John E.Lucas 01_584464 ffirs.qxd 5/24/05 10:47 PM Page i Reverse Mortgages For Dummies ® Published by Wiley. Wiley, the Wiley Publishing logo, For Dummies, the Dummies Man logo, A Reference for the Rest of Us!, The Dummies Way, Dummies Daily, The Fun and Easy Way, Dummies. com and related trade dress